Venture with Grace
00:40:56 · Jay Zhao
[00:40:56] S1: a That's our swag we give other people. So it's interesting, we try to there's two mechanisms that we think. We think each fund lasts for two or three years for a reason, right? Because there is certain high confidence, eighty-ninety percent chance, you should be willing to make bold prediction of what's gonna happen in two or three years. It does not need to be nitty gritty detail on the product form and product shape, but you can start from first principle thinking and then infer some implications for companies. So for our Fund three, which we'll deploy from 2027 to 2030, we talk about like the agent will become more popular in both enterprise and personal setting. So it has implications for the Asian infrastructure side because that's right now is not a worldview out there are some companies doing this but the market is not fully mature yet. So this is one of the space that we will continue to monitor and obviously work with best founder in the space. But you need to have that world view to find companies and think about token economics and think about how does it moat being formed in the agent's era and agent space, which is something that we put out in the research post, called agent line graph. Along the way, right, so at Leonis as a forum, each partner every month that we have what we call the internal monthly learning session. So each one of us has to be a professor one day. We have to share a new area and new things that we're curious about and get feedback from other partners. So Physical AI is one example. It actually comes from an initial debate about hot deals that's being shared with us. That company, I would just say the first round of valuation is 2,000,000,000.
00:42:58 · Grace Gong, Jay Zhao
[00:42:58] S0: Only $2,000,000,000 [00:42:59] S1: I'm just kidding. [00:43:00] S0: I feel like Nodd is like the physical AI space is raising $2,000,000,000 at CNBC. Yeah, it's quite wild. [00:43:09] S1: So we got invited to the deal and then, you know, who is who is on the cap table it's one class of hot deal, right? So that actually started a pretty intense internal debate because question is that it's actually not so much about the valuation per se, it's like do we actually believe the tech direction is correct? If it's correct, then maybe even at $2,000,000,000 it can compound into a $20,000,000,000 deal, right? So there's a lot of back and forth debate within the partnership, and that translated into what we call the monthly lesson. So basically one partner will share and prepare and lead those discussions and that map out our deeper understanding about the physical AI space. And that will we'll start some experimental check into Neo4j in 2007. But that is kind of how we integrate Neo theses along with the three main theses that we have. And I think it makes sense for three years because after, you know, when it comes to 2029, 2028, I'm sure new things will come up, new types of things will be unlocked, and that just provides new building blocks for the builders, and that's why we will have new funds that back when they evolve thesis. I don't know if that answers your question [00:44:27] S0: or not, but... [00:44:28] S1: I would
00:44:28 · Jay Zhao, Grace Gong
[00:44:28] S1: I would [00:44:28] S0: assume, well, because of like if I feel like if you're an institutional investor, it's very different than like an asset and jewel. I feel like if you back the really hot deal, it's not necessarily because of the hot deal, it's gonna be hot, but it's more of like the current smaller deals, when they see, oh, this person back backs, they must be legit. So let's like, oh, pitch this person because of like, you know, we have something going on here. So it's more of like helping you attract the more hot deals down the line, so like, but I feel like for institutional investors, it's probably like, it's very different because your check size is different, Yeah. There's like, know, how do you... Do you have like a portfolio? Guess know like you have a portfolio construction, but I guess like is there a cutoff line of like your company's valuation or like ownership Do you invest in like the same ish, [00:45:21] S1: same [00:45:21] S0: size check to let's say 30 companies? Or would you say it's like every company you have, based off their evaluation, you have put in different size capital? [00:45:34] S1: Yeah, it's interesting. Yeah, I think that practice is actually being emphasized by some other VC firms as well, it's called local shopping, right? So I think one of the common tricks or common practice for some newer funds or even before they start a new fund, they warehouse some hot deals and then port it into the website and then you know, I mean I think some VCs they definitely do that.
00:45:34 · Jay Zhao, Grace Gong
[00:45:34] S1: Yeah, it's interesting. Yeah, I think that practice is actually being emphasized by some other VC firms as well, it's called local shopping, right? So I think one of the common tricks or common practice for some newer funds or even before they start a new fund, they warehouse some hot deals and then port it into the website and then you know, I mean I think some VCs they definitely do that. [00:45:56] S0: I'm so amazed by people just straight up putting in SpaceX into every single fund invests in SpaceX or like anthropic or to some degree. So it's like, I felt like also there's actually zero indication of like, are you doing SPV or is this secondary or what's happening. [00:46:18] S1: Yeah, that's true, that's very true. And I think if people visit Silicon Valley, it's incredible. It amazes a lot of people, my friends who visit Silicon Valley. [00:46:29] S0: At least half of the SF on SpaceX.
00:46:31 · Jay Zhao
[00:46:31] S1: Yeah, exactly. A lot of name dropping going on and stuff is kind of interesting. To answer your question, from our fund perspective, obviously we do concentrate portfolio construction, and we think for Fund two, 20% of the company should have ownership requirement, And fund three, we expect we can do 50% of ownership requirement because we have bigger capital pool and we have a brand and we have more track record. So those are the core positions in our fund. For fund three, our core position is first check is the $13,000,000 and we do have a supportive check that's more flexible in terms of few 100 ks, but the idea is always like, know, either the round is closing faster than we expected, we have to build a relationship in some way with our framework, and we'll do that, and then leading to a core position, right? I would say oftentimes our underwriting is... Because people are always asked like, how long does it take for you guys to make a decision? I think it's not about the time, it's really about how many times that we can meet between now and the finish line. So if we can schedule all the four meetings within two days, then that's fine, but oftentimes in hot rounds it's kinda hard to do, right? So it typically leads four or five meetings with either one partner or the partnership to get their full conviction. And then valuation wise, I would say we just have to think about it as a number, but more importantly, what type of conviction or type of understanding we have about the macro market, the exit environment, and the follow on capital side to the entry point, can we still get a 3x, 5x, 10x of outcome out of there? If the answer is yes, then we will put $1.3000000 dollars into those rounds. Obviously no ownership requirement in those cases, we still believe that it's still major scale return. It's getting hard and harder these days, to be honest.
00:48:37 · Grace Gong, Jay Zhao
[00:48:37] S0: And sir, so since you guys have a really top guess out return, so I'm just curious, do you see like is there like a certain percentage of like you know like when people say your fund construction like just like a lot of like times like people say like doing the emphasis of like if you have like $10,000,000 fund you need to have like one company at $5,000,000,000 valuation and then you have to have maybe two of them at $1,000,000,000 valuation and just assume half of them die and then maybe the rest of them is 1x or whatever. So it's like they didn't die, but they also didn't go anywhere. Is there any kind of structure like that we are seeing from your portfolio as well? [00:49:19] S1: Super interesting, we just had our AGM a few weeks ago. We report our portfolio through our LPs. So our fund one, we only have... So each fund we do like... [00:49:30] S0: Is it a good thing if you never have any company that dies? I feel like it's maybe a bad thing because you're not like basically betting on crazy stuff, you're betting on the okay survival stuff, which won't [00:49:44] S1: technically It's return the definitely a good balance, right? Each fund we do 25 or 30 companies. Out of Hong Kong, we'll probably have two unicorns, probably have one third unicorns. [00:49:55] S0: Meaning like billion dollar value share of dollar. Is there only a specific, let's say like 1,000,000,000 or it's not even 5,000,000,000?